Widespread thumbs-up for RBA rate pause

The RBA’s decision to hold interest rates steady at 3.6 per cent on Tuesday was a welcome relief for businesses and households and heralded as the correct decision by commentators.

Governor Philip Lowe said the RBA board decided to pause the run of rises to observe their full impact but indicated further increases were still a possibility. 

“The board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt,” said Dr Lowe. 

“The board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.”

“The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.” 

Chief investment officer at Datt Capital, Emanuel Datt, said while the move by the RBA was predictable, it was the smart choice. 

“We are not surprised the RBA has adopted a safety first measure in pausing rate rises,” said Mr Datt. 

“It seems to us, RBA has chosen to wait and observe what’s in the forthcoming May federal budget in terms of fiscal measures to attack inflation before deciding on another round of rate rise medicine.” 

“This is logical, and in our opinion, a good policy.” 

Deloitte Access Economics partner Stephen Smith said based on the available data, the RBA had done the right thing.

“The move to maintain the cash rate at 3.6 per cent following 10 consecutive rate hikes comes just days after monthly inflation data showed price increases slowed to 6.8 per cent in the year to February, below consensus forecasts,” said Mr Smith. 

“It also comes a week after ABS data showed retail trade grew by just 0.2 per cent in February, which represents an overall decline in the volume of goods sold after accounting for inflation and population growth.” 

Australian Chamber of Commerce and Industry chief of policy and advocacy, David Alexander, said the pause would allow businesses to reevaluate their position during the recent economic volatility. 

“A pause will help small businesses take a breath as they adjust to the challenging economic environment of high energy costs and high inflation,” said Mr Alexander. 

“CPI data released last week has reinforced expectations that Australia has begun to turn the corner on inflation, but it still remains high, and the RBA concedes further rate hikes may be needed.” 

“Coupled with the global banking ructions in the United States and Europe and the stresses across residential and commercial construction, it is clear businesses face a turbulent outlook in the months ahead.” 

Master Builders Australia CEO Denita Wawn said while the pause was welcomed by the building industry, the government had to step up and do its part. 

“The RBA has rightfully recognised the negative impacts of rapidly rising interest rates on accelerating rental prices and construction activity,” said Ms Wawn. 

“There is now an opportunity for government to step up with bold fiscal policy decisions to complete the job of bringing inflation back into line.” 

“The government needs to take the necessary steps to ensure we are not overdependent on interest rates as the tool for controlling inflation. By doing so, we can help take some of the pressure off the shoulders of mortgage holders and business owners.” 

CPA Australia’s senior manager of business and investment policy, Gavan Ord, said the news would have been warmly received by many but warned against complacency.

“This is welcome relief for businesses and households who have faced rising rates, higher costs and economic uncertainty for months,” said Mr Ord. 

“The latest data shows we have had two months of lower annual inflation. While this could indicate inflation has peaked, businesses should still be planning ahead for further volatility.” 

“We are facing an unpredictable environment and businesses should not assume rate rises are over. This is not a time for complacency for businesses or governments. We want next month’s federal budget to focus on opportunities to improve business resiliency.” 

BDO Australia’s project and infrastructure advisory partner and economist Ally Flint agreed and said the cautious RBA decision had been influenced by recent economic data. 

“In addition to recent lower-than-expected monthly inflation figures, global financial market turmoil, falling job ads and weaker consumer confidence have led to a cautious approach from the RBA,” said Ms Flint. 

“Given the combined signals that the economy is weakening at a faster rate than anticipated, this is considered a prudent move.” 

Principal at Atchison Consulting Kevin Toohey said the RBA board had reached the right verdict and many were confronting economic pain.

“The appropriate decision was made by the RBA to pause interest rates as fixed-rate mortgages will soon roll to variable rates,” said Mr Toohey. 

“Today’s decision does not mean that the RBA will soon decrease interest rates.” 

“It is important to remember inflation is still high, and the labour market is still very tight. At Atchison, we still see more real economic pain to come.” 

Chief executive of Ai Group, Innes Willox, said the decision by the RBA on Tuesday made sense and urged it to properly review and evaluate the impact of the monetary policy so far.

“With the full impacts of earlier rate rises yet to flow through and more mortgages coming off fixed home loan rates, it makes sense for the Reserve Bank to at least pause to allow it to evaluate whether further rate rises will be needed to ensure inflation is tamed,” said Mr Willox. 

“Critical to this evaluation will be the degree of restraint in price setting by businesses and governments, in wage negotiations and wage determinations of the Fair Work Commission.”